China a Threat to Rolls Royce and the Commercial Airline Industry?
Is China A Threat to Rolls Royce and the Commercial Airline Industry?
Managing the Global Enterprise MB Sarkar Team 3 Binh Tran, Amir Kesten, Geoff Faden, Jai Gula Table of Contents
• Execu ve Summary • Major Players in Commercial Avia on Engine Industry • Geographical Presence • Current Chinese Demands • COMAC (Commercial Aircra Corp. of China) • AVIC (Avia on Industry Corp. of China) • Current Landscape – Biz News • Expected Financial R&D Expenditures – Major Players vs. China • Russia Squeezes China by the Engines • Conclusion Execu ve Summary
• There are 5 major players in the commercial engine industry which have total revenues ranging from 12 Billion to 20 Billion USD • 50% of described revenues comprises of servicing exis ng engines in the field • Of the 5 organiza ons GE, Pra & Whitney, and Rolls Royce are true global players in the market with presence in all key markets • The demand in China is increasing with poten al of encompassing 1/3 of the total demand within the next decade • China is increasing its large passenger aircra program to form partnerships with GE, Cesna, and Ryanair • AVIC commerical aircra engine corpora on is also forming partnerships with MTU, Safran, and Hamilton Sundstrand to gain access to minimize technology gaps • China’s State Council is expected to approve a 16 Billion USD investment in Aircra Engine R&D with more capital to come from China and Hong Kong Financial markets • There are high ambi ons for China to be a major player; we do not believe they can be a viable threat in the wide body plane engine in the short term, however China will emerge as threat within the narrow body engine market in the next decade Major Players in Commercial Engine Industry Major Players in Commercial Engine Industry
• Since 1917 • Since 1906 • Revenue $18.7B • Revenue $19.66B • world's leading producer of • powers more than 30 large and small jet engines types of commercial for commercial and aircra and has 12,500 military aircra engines in service • supply aircra -derived engines for marine applica ons and provide avia on services
Major Players in Commercial Engine Industry
• Since 1925 • Joint venture between GE • Revenue $12.94B Avia on, a division of General • power more than 40 Electric of the US and Snecma, percent of the world’s a division of Safran of France • Formed to build and support passenger aircra fleet the CFM56 series of jet • serve more than 800 engines customers in 160 countries • Provided more than 23,000 engines for more than 500 consumers throughout the world (since 1974) Commercial Turbofan Engines – Wide body Aircra (Engines with Thrust Range of 60-90K lbs.) Commercial Turbofan Engine – Narrow Body Aircra (Engines with Thrust Range of 20-40 lbs.) Por olio of Commercial Turbofan Engines for Wide & Narrow Body Aircra RR – 2011 Sales vs. Services
Highlights: • RR Trent 1000 enters service on Boeing 787 • Trent XWB exclusive contract on longer ranger Airbus A350 XWB • 1,000th Trent 700 delivered for Airbus A330 • New joint venture announced to address engines for future mid-size aircra • BR725 cer fica on program for the Gulfstream G650 on course
Key Financial Data: 2007 2008 2009 2010 2011 Order book (£B) 35.9 43.5 47.0 48.5 51.9 (+80%) (+21%) (+8%) (+3%) (+7%) Engine deliveries 851 987 844 846 962 Underlying revenue (£M) 4,038 4,502 4,481 4,919 5,572 (+3%) (+11%) (0%) (+10%) (+13%) Underlying OE revenue (£M) 1,484 1,776 1,855 1,892 2,232 Underlying service revenue (£M) 2,554 2,726 2,626 3,027 3,340
Underlying profit before financing 564 566 493 392 499 (£M) (+9%) (0%) (-13%) (-20%) (+27%) Geographical Footprint – Commercial Turbofan Engine Manufacturers Potential Chinese Demand for Large Jet Engines for airliners and business jets
Source: Boeing, Bombardier, CFMI, China SignPost • COMAC (Commercial Aircra Corpora on of China) - State owned consor um governing large passenger aircra programs. • Adopts an “air-framer-suppliers” model, focusing on design, final assembly and manufacturing, marke ng , CS and cer fica on. • Adheres to the principle of “Development with Chinese Characteris cs”, liasing mainly with Chinese suppliers. Suppliers COMAC Foreign partnerships
Ryan Air Europe’s leading low cost airline, GE Avionics with >300 737’s Cessna Signed a joint venture with AVIC to AVIC signed an agreement with Signed an aircra design agreement supply avionics to the C-919. This is a Cessna for final assembly of in China with COMAC reciprocal agreement to the use of of the Cessna Caravan. CFM engines on the C-919
COMAC ARJ-21 700/900
• 90 seat regional aircra with “high resemblance” of the MD-80 • Development started in 2002 with target launch in 2008. A er numerous technical and cer fica on delays current launch is targeted within 2013 • Orders: 309, all Chinese airlines • Engines: – General Electric CF34-10A – 17000 lbf thrust COMAC C-919
• Program began 2009, with scheduled test flight in 2014 and deliveries to begin in 2016. • Mid range,170-190 seats, will compete with a320 and 737. • Orders: 380, all Chinese airlines, with foreign company interest • Engines: • 2* CFM LEAP X, to be replaced with CJ-1000A • 25000-30000 lbf thrust • Founded in 2009 to develop China’s high bypass jet engines through R&D and interna onal coopera on. Major subsidiaries: – Shenyang Liming A ircra Corpora on – Avic Xi’an Aeroengine • Mission: “Strengthening the na on with avia on; Promo ng the na onal avia on engine industry and supplying sustainable power for the global development” CJ-1000A • Operate in 5 year Launch 2016 0.53 kgf thrush plans • First engine, CJ-1000A is CJ-1000AX targeted at the Launch – 2022 0.53 kgf thrust COMAC C-919 • Bypass ration >9 • HPC Pressure CJ-1000ER Ratio = 20 Launch – 2026
0.52 kgf thrust AVIC Engine Foreign partnerships
Safran SA MTU Aero Engines Hamilton Sundstrand Corpora on, a Germany’s leading engine French developer of aerospace subsidiary of United Technologies manufacturer propulsion and aircra equipment, Corp. (NYSE: UTX) Specializes in high tech Coopera on with (AVIC) to develop reached an agreement to form a manufacturing techniques like new-genera on turbo sha engines partnership suppor ng the launch of lasercarving for which it has patents for heavy helicopters intended for a new auxiliary power unit (APU) for both the Chinese market and the commercial aircra segment. Provides engine maintenance interna onal markets. CJ-1000A • Operate in 5 year Launch 2016 0.53 kgf thrush plans • First engine, CJ-1000A is CJ-1000AX targeted at the Launch – 2022 0.53 kgf thrust COMAC C-919 • Bypass ration >9 • HPC Pressure CJ-1000ER Ratio = 20 Launch – 2026
0.52 kgf thrust AVIC Engine Foreign partnerships
Safran SA MTU Aero Engines Hamilton Sundstrand Corpora on, a Germany’s leading engine French developer of aerospace subsidiary of United Technologies manufacturer propulsion and aircra equipment, Corp. (NYSE: UTX) Specializes in high tech Coopera on with (AVIC) to develop reached an agreement to form a manufacturing techniques like new-genera on turbo sha engines partnership suppor ng the launch of lasercarving for which it has patents for heavy helicopters intended for a new auxiliary power unit (APU) for both the Chinese market and the commercial aircra segment. Provides engine maintenance interna onal markets. China spends billions on aerospace - Biz Wire - March 5,2013 - BONTV China
h p://www.youtube.com/watch?v=dcozX4AVtDc Financial Comparisons: Avia on Expenditures
3500
3000
2500
2000
2009 1500 2010
1000 2011
500 MillionsDollarsof (USD) 0 AVIC (China) General Electric UTC - Avia on Rolls Royce - Avia on (Commercial Avia on
Time (Years) Russia Squeezes China’s Engines
• Since 1989, import into China of military aircra and military engines has been banned by Western countries • Being solely reliant on Russian aircra and engines forced China to invest in its own military aircra and engines • Though having rela ve success within aircra manufacturing, the Chinese military aircra engine industry suffered numerous setbacks resul ng from lack of technology – More so manufacturing technology and reliability • The WS-10A engine which is a Chinese copy of the Russian made AL-31FN has been having reliability issues repeatedly, which has caused the Chinese to go back and order hundreds of Russian made engines to power their J-10 fighter • Russia fears that the recently purchased engines will be reverse engineered, therefore they have started to put more restric ons on expor ng to China thus squeezing China by its recently purchased engines Government Run Companies vs. Private/Public Companies • Some of China’s technological setbacks in its military programs are a ributed to the government run structure of its aircra and engine industry • The lack of incen ves and entrepreneurship s fling innova on • Billions of dollars poured over the years were ineffec vely used • The Russian aircra and engine industry has suffered similar setbacks during its seventy years of communism • China is moving towards par ally priva zing their aircra and engine programs as can be seen by the fundraising in the private markets Conclusion • Chinese State Council is expected to approve a 16 Billion USD investment over the next 5 years in Aircra Engine R&D with es mated 50 Billion USD for 20 years. More capital is expected to come from China’s and Hong Kong’s Financial markets • China is partnering with leading American and European companies in the technology of engine technology and enhanced manufacturing technology • Pundits and think-tanks alike es mate that China’s large investments are driven by na onalis c ambi on for technological independence, and fueled even further by crippling military bans from Western Na ons • China is making an effort to par ally priva ze its engine industry to increase efficiency and technological advancement • High ambi ons for China to be a major player; we do not believe they can be a viable threat in the wide body plane engine in the short term, however China will emerge as a narrow body engine threat within the next decade • As consultants to Rolls Royce, we agree with the asser ons made by the regional director of North East Asia that China would not be a direct threat to Rolls Royce commercial avia on within the next 10 years because their primary revenue is derived from the Wide-Body Engine market sales and services. With that being said, the investment they make in the narrow-body R&D should translate to wide- body technology gap closures.
THANK YOU References
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